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The Laundry Detergent Market 1999

Procter & Gamble continues to dominate a two-tier market, but a few manufacturers have been able to carve out small niches for themselves. Liquids topped powder for the first time ever.

On the doorstep of the new millennium, tension between the haves and the have-nots has never been greater. In the U.S., the disparity between upper and lower household incomes continues to widen. In Europe, the most economically successful western nations are combining forces to form the European Union while their neighbors to the east have been turned away from the unification process. Globally, poorer nations cast an envious eye toward the developed world while at the same time the U.S. and other G7 countries lecture the developing world on the evils of pollution and overpopulation, two problems that are encroaching on one of the world's most precious resources, the water supply.

Niall Fitzgerald, chairman of Unilever, issued a warning and a challenge to detergent formulators at the American Oil Chemists' World Conference on Detergency in Montreux, Switzerland in October. "By 2025, two-thirds of our village (the earth) will be living with 'water stress,' meaning that they won't even have enough for safe drinking water and sanitation-never mind enough for a wash load."

He called on the detergent industry develop more efficient and sustainable ways of using water and suggested chemists concentrate on a few key issues:
oRaise the priority of product development for the toughest conditions, including washing in little water, cold water, gray water and even salt water;
o Constantly pursue the best practice to minimize water consumption in the industry;
o Factor water into product life cycle assessments; and
o Encourage wider initiatives to improve the quality of water.

These global issues may dwarf the problems facing laundry producers around the world, but at the same time they mirror what is taking place in mature consumer markets around the world. In the U.S., middle tier brands have been nearly squeezed out of existence by premium and low-priced products.

When it comes to U.S. market share, Procter & Gamble is firmly in the "haves" camp. For the 52 weeks ended September 27, P&G's Liquid Tide increased its dollar share 18% and now controls more than 33% of the market. Overall, the liquid category rose 9.3% during the period as sales topped $2.3 billion, according to data compiled by Chicago-based Information Resources, Inc. Thanks to Tide's strong performance, as well as strong gains by Purex (dollar sales increased 17%), Surf (up 21.4%) and Arm & Hammer (up 23.5%), liquid detergent sales finally surpassed powder sales in 1998. Meanwhile, total powder sales slipped 4.8% to $2.1 billion. Once again, Tide was far in front with a 43.8% dollar share-well ahead of Cheer, another P&G brand, at 9.3%.

Clean Rinse Formula
To keep the pressure on its competitors, P&G introduced Liquid Tide with Clean Rinse formula in August. The formula promises to clean and remove stains better and make clothes brighter. The key difference between the old and new Tide formulas is the incorporation of ingredients that prevent dyes from redepositing on clothes and suspend soils in the wash. The new Clean Rinse formula is available in all Tide products. Although Tide's price rose 8%, company spokesperson Molly Humbert said Tide still remains a good value. "While we have been able to significantly reduce our laundry list prices over the last 10 years through cost savings and strong volume growth, inflation and raw material costs have continued to rise. The price increase will help offset these costs, including the new technology and improved packaging, while still offering consumers excellent value."

In another move, Procter & Gamble is introducing a new 300-oz. size for Liquid Tide after research showed consumers preferred a larger liquid package that was also easy to handle and to dispense. Obviously all those price clubs sprouting up around the country have done a good job convincing Americans that using big, bulky containers is worth the effort if you can save some money.

On the subject of discount stores and mass merchandisers, Wal-Mart, the nation's largest mass merchandiser and P&G's biggest customer, is reportedly preparing to roll out a premium private-label laundry detergent sometime during the first quarter. A Wal-Mart spokesperson denied reports of the launch.

USA Will Rise AgainAnother big Wal-Mart supplier, USA Detergent, has completed an arduous expansion program and is ready to resume its sales climb. Founded just 10 years ago, the company's sales topped $100 million by 1995, when sales jumped more than 50%, and reached $227 million by 1997. But the rapid growth came at a price-USA had outgrown its single production facility in North Brunswick, NJ and embarked on expansion plans that included building two new production facilities in Illinois and Missouri.

The capital expenditures put a major crimp in earnings and in 1997, the company posted a loss of $21 million. But in a recent interview at its headquarters in North Brunswick, NJ, USA's chairman Uri Evan assured happi that the firm is well-positioned to become a bigger player in the $17 billion market it competes in (including detergents, cleaners and candles).

"Building capacity costs money. We eroded our gross margins which had been as high as 34%," said Mr. Evan. "We're not a giant like P&G. We took a $45 million capacity, tripled it and we paid the price." Besides recording net losses, the company was sued by shareholders who had watched USA's stock drop from more than $40 dollars a share, down to the single digits. The company agreed to pay $10 million to settle the lawsuit. For the recently completed fiscal year, USA will report an operating profit, although sales will remain flat at about $230 million.

Despite the distraction, Mr. Evan said the company re mains committed to expansion. "In 1996 our ultimate capacity was $180 million. During 1997 and 1998 we reached $230 million. Now, with three plants, we have the capacity to be a $600 million company." Mr. Evan quickly added that there is no timetable to reach that sales total, saying only that USA is poised to thrive in a laundry detergent market that has undergone tremendous change in recent years. "There's a shift in share. The value segment holds about 15% of the volume. It was close to 1% when we started."

Despite P&G's dominant market share, Mr. Evan insisted that P&G is not its primary competition. "In a two-tier market, we're P&G's best friend," said Mr. Evan. "The market is segmented by affordability. Fifty percent of Americans don't make $33,000 a year," he pointed out. "Economically speaking, one-third of the U.S. is a third world country. They don't look for brighteners in their laundry detergent."

USA has also entered new markets. The company now exports products to Asia. Mr. Evan said global markets give the company an opportunity for growth as long as USA views them as solutions that stem from its capacity. "Freight costs to the Far East are favorable. It's cheaper to ship to Hong Kong than to California," he noted. International sales currently account for less than 5% of USA's total sales and Mr. Evan doesn't expect international markets to account for a large portion of sales in the near future. "We're just looking for efficiencies," he told happi. "It's not global expansion, it's export expansion."

Mr. Evan declined to make predictions regarding sales and earnings for 1999, only noting that, with its expanded capacity, "we've prepared ourselves for continued growth."

Amway has been operating in Asia for years and the company recently registered strong sales in Japan with the 1998 worldwide debut of Fabric Protector. The 7.6-oz. aerosol spray protects silk and other fine fabrics. "Response in Japan was phenomenal," recalled Chris Congdon, manager, home care marketing. "We introduced it just as the rainy season started and we sold out quickly."

Fabric Protector can also be applied to topcoats, hats and backpacks. Unlike similar products on the market, it dries in just 30 minutes. "There's a trend toward specialized products, but versatility is still important. Consumers can use one can for a variety of applications," said Ms. Congdon.

In Europe, Amway has introduced SA8 Colour, which eliminates dye transfer and fading. "We wanted to expand the brand into laundry products that meet specific consumer needs," said Ms. Congdon. "People have different needs depending on family size, lifestyle and where they live. In Europe, most laundry detergents have bleach in them and that affects the color of clothing."

Ms. Congdon said Amway has no plans to introduce SA8 Colour in the U.S., because a current product, SA8 Bioquest, has similar attributes. But Amway hasn't neglected the lucrative U.S. market. The company is developing a product that lets consumers decide how to fragrance their laundry. "Fragrance is a big trend in the detergent market," noted Ms. Congdon. "Aromatherapy has been well-accepted and now consumers want fragrance alternatives for their laundry products-they don't want a 'one-size-fits-all' fragrance." Although Ms. Congdon refused to elaborate, she did say the product in development could be added right at the beginning of the wash load.

The American Family Plan

While P&G tries to dominate the market, USA Detergent climbs toward $300 million in sales and Amway expands around the globe, one laundry detergent marketer has much more modest goals-.5 or 1% market share and it has a novel point of difference from its larger competitors. Hathi Group, Forest Park, IL, acquired the American Family detergent brand when it purchased Kirk's Castile Soap from P&G in 1995.

"Retailers saw our American Family props when we began attending trade shows to promote Kirk's," recalled Jack Murphy, director of marketing. "We were shocked by the brand's recognition and retailer interest in it." Based on these queries, the company is trying to build distribution in the midwest. American Family has gained distribution in Meijers, a privately held, 112-store retailer that operates throughout the midwest. Mr. Murphy conceded that it has been difficult to build retailer acceptance for the 3-SKU line, but he said American Family may be able to find its niche because the detergent is less corrosive than other formulas on the market, which makes gentler on washing machine's metal parts as well as zippers.

To further stand out from the crowded store shelves, American Family detergents include a free gift. The initial gift is a bar of Kirk's Castile Soap and in the future American Family cartons may contain first aid kits. But no matter what the free gift, Mr. Murphy insisted, "it will definitely exceed the customer's expectations and they won't have to deal with the hassle of coupons or rebates." Exceeding the customer's expectations in the new millennium should be a paramount objective of every marketer. Laundry detergent companies that anticipate problems and solve them will be the most profitable in the 21st century.